America’s housing affordability crisis is about to get a lot worse as mortgage rates are headed for new multi-decade highs, experts warn.

That’s the view of Bruce McNeilage, the CEO and co-founder of Kinloch Partners, a Nashville-based real estate company.

In an interview with Yahoo Finance, McNeilage predicted that 30-year mortgage rates were expected to reach 8%—a level not seen since the early 2000s

“I’m calling 8%,” McNeilage predicted. “There is not enough supply out there. Supply and demand is working. The value and price of homes is just simply not going down.”

While many buyers are waiting for rates to come down, McNeilage said that’s a losing strategy. “If anybody is waiting to get a house and can get a mortgage right now, I would suggest they do so,” he said.

His advice echoes that of Redfin’s Connie Durnal, who recently warned that financing rates aren’t coming down anytime soon.

“If you can afford to and you find a house you love, buy now. There’s no guarantee that rates will come down soon,” Durnal said.

According to Freddie Mac, average 30-year mortgage rates peaked at 7.79% last October, the highest in more than two decades. At the end of 2023, mortgage rates had dipped to the mid-6%, but they have since re-accelerated.

Experts blame rising mortgage rates on resurgent inflation and the Fed's indecision about lowering rates.

Renewed inflation fears

A string of hotter-than-expected inflation reports has put economists on high alert that the Fed is probably not prepared to lower interest rates anytime soon.

In fact, Fed Vice Chair Philip Jefferson recently reaffirmed that rising inflation could force the central bank to keep rates higher for longer.

“With no cuts to the federal funds rate imminent, and with the economy still strong, there is no reason to see downward pressure on mortgage rates right now,” according to Lisa Sturtevant, the chief economist at Bright MLS.

“It seems increasingly likely that mortgage rates are not going to come down any time soon.”

Economists say that it’s not just inflation data impacting the Fed’s decision-making.

Other indicators, such as employment, have been “shockingly unfriendly” to rates, according to Matthew Graham, chief operating officer at Morgan News Daily.

A strong job market “means that mortgage rates are not likely to drop much further at this point,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association (MBA).

Investors are nearly 100% certain that the Fed will hold rates at 5.5% at its next meeting, which concludes on May 1. According to CME Group’s FedWatch Tool, the odds of a rate cut remain below 50% until September.

Existing home sales slump, average listing time jumps

There's growing evidence that the recent uptick in rates is already taking its toll on the housing market.

A new report by the National Association of Realtors revealed that existing home sales declined by 4.3% in March and were down 3.7% year-over-year.

Experts say a lack of supply remained one of the key issues, driving up home prices and making it harder for buyers to enter the market.

Meanwhile, a new study by Creditnews Research revealed that homes stayed on the market for longer in 95 of the top 100 metro areas by population in the first quarter.

No major metro area reported a faster sales pace compared to the fourth quarter.

There’s also evidence that weakness is spilling over into the second quarter, with MBA reporting that weekly mortgage applications declined by 2.7% in the period ending April 19.

Applications for refinancing also fell by 6%.

Although weekly data can be highly volatile, MBA deputy chief economist Joel Kan said, “Home buyers delayed their purchase decisions due to strained affordability and low supply.”

Matthew Walsh, a housing economist at Moody’s Analytics, thinks Americans delaying their purchases will be a pervasive issue for the rest of the year.

“Extremely low housing affordability and a lean inventory of homes for sale will prevent a meaningful rise in transaction volumes in the coming months, but will support continued national price appreciation in 2024,” Walsh told MarketWatch.

More from Creditnews: